ATF says it won't waver despite millions at stake

Published 8:22 pm, Saturday, March 22, 2014

New York Attorney General Eric Schneiderman and other state attorneys general are alarmed that federal enforcement of a law aimed at Indian-tribe tobacco sales might go up in smoke.

For New York and other states, millions of dollars in annual tax revenues are hanging in the balance.

The law in question is the PACT — Prevent All Cigarette Trafficking Act, enacted in 2010.

The law requires all interstate sellers of cigarettes and smokeless tobacco to register and report sales for tax purposes with states in which they do business, as well as with the chief federal enforcer — the Bureau of Alcohol, Tobacco, Firearms and Explosives.

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It is aimed primarily at cigarette wholesalers who ship via the Internet, many of which are owned by Indian tribes and operate on reservations.

In addition to registering with states, the law stipulates tribes and other cigarette shippers must pay all applicable state and local taxes up front and affix tax stamps to their products.

A major tribal player, Native Wholesale Supply, located on the Seneca Nation reservation near Perrysburg in Western New York, has filed a petition with the U.S. Supreme Court against the state of Idaho's efforts to register its tobacco shipments under state law.

Tribal lawyers insist these laws, whether state or federal, are inapplicable to Indians operating their businesses on sovereign reservation lands. Since sales are between reservations in different states, federal law governing interstate commerce is invalid.

"Indians are entitled to sell tobacco to Indians in Indian Country'' without regulation, Native Wholesale Supply said in a court brief against Idaho.

Last month, Schneiderman backed Idaho Attorney General Lawrence Wasden in a letter to U.S. Attorney General Eric Holder expressing concern that the ATF, after meeting with tribal representatives and their lawyers, was in full retreat from enforcement of the PACT Act.

Exhibit A: ATF took down a frequently-asked-questions website site posting attached to its explanation of the PACT Act. The FAQ stated that the law clearly applied to wholesalers and distributors on Indian reservations.

"We are concerned that the removal of the FAQs may evidence a determination by ATF to narrow its current interpretation of the PACT Act to exclude various tribal cigarette sales and shipments,'' Wasden wrote in the Feb. 21 letter to Holder.

New York levies the highest tobacco taxes in the nation — $4.35 a pack. New York City adds $1.50 in taxes, bringing the tax total on a pack of cigarettes in the five boroughs to a whopping $5.85. Connecticut is No. 3, with a tax of $3.40 a pack. Texas is No. 23 at $1.41 a pack and California is No. 32 at 87 cents.

New York lost tens of millions of dollars in tax revenues over the past five years in one tribal-cigarette case alone, said a New York attorney general's office lawyer, who asked not to be identified. In Idaho, authorities estimate tax losses of $8.5 million in 2013.

New York State Police in 2012 intercepted a truck in Clinton County carrying 140 cases of unstamped King Mountain cigarettes, produced by Yakima Nation in the state of Washington.

The size of the load, totaling 168,000 cigarettes, showed the shippers intended to sell the packs to "non-Indian consumers,'' Schneiderman's office argued in a court filing against Yakima Nation.

In recent years, ATF has backed off enforcement of laws governing "tobacco diversion" — underground smuggling of cigarettes from Indian reservations to urban markets or from low-tax states in the South to high-tax states like New York and Connecticut.

Last year, the Times Union obtained an ATF memo that directed agents to downgrade tobacco-diversion investigations unless there is a "nexus'' to violent crime.

Beyond the tax revenues, anti-smoking advocates note that the aim of high taxes is getting smokers to quit and preventing young people from lighting up in the first place.

"It's very well established that high cigarette taxes are an effective strategy against smoking; numerous studies show it," said Dennis Henigan, director of legal and policy analysis for the Campaign for Tobacco-Free Kids. "Young people are very price sensitive and the central battle here is for the hearts and minds of the young.''

Officials view cheap untaxed cigarettes from Indian reservations as inimical to these goals.

"It is absolutely crucial to the health of our citizens — especially children and teenagers, who are particularly vulnerable to low-priced cigarettes and deceptive advertising— that the PACT Act remain strong and enforceable,'' said Schneiderman's spokesman, Matt Mittenthal. "Attorney General Schneiderman urges the ATF to continue to give the PACT Act its broadest interpretation so that New York State and others can effectively enforce this important law.''

Jones, who won Senate confirmation as ATF director last summer, described federal jurisdiction over Indian tribes as a "minefield.'' But, he added, "our ears are open" and state attorneys general should not view removal of the FAQs as "as an indicator (of) what our future plans are."

ATF spokeswoman Ginger Colbrun said the bureau was not backing away from ATF's previous position that the PACT Act does, in fact, apply to tribal interstate Indian cigarette sales.

ATF took the FAQs down after meeting with tribal representatives because the answers were three years old and "it was time to review (them) based upon the passage of time and the experience gained in enforcing the PACT Act,'' Colbrun said in an email statement. "We've committed to reviewing the FAQs, but not to making any specific changes unless we conclude they are warranted by the law.''